Mortgage Meltdown Woes Spread To Home Builders

The Wall Street Journal says that subprime woes have started to put our nations small and midsized home builders in a difficult position. And as the home builders go so goes the regional banks…

Bill Whitlatch, longtime owner of one of the leading home builders here in northeast Ohio, is among the casualties. Three years ago, he borrowed from regional banks to start six developments in the Cleveland area. Soon the region’s home market turned cold. Buyers vanished. Mr. Whitlatch drained his personal savings of $2 million to keep his company going.

It wasn’t enough. In September, the company filed for bankruptcy protection. Now owing about $1 million to dozens of subcontractors, and $8 million in debt to his banks, Mr. Whitlatch is selling the family home he designed.

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A big rock was thrown into the pond called the US Economy. These are the ripples. Next, expect a wave of construction-related unemployment this summer, as many of the subcontractors go out of business.

In my own town, it has never been easier to find someone to work on a house– 2 years ago you couldn’t get a plumber or handyman/GC type to even call you back, they were so busy. Now they’re posting flyers at the supermarkets looking for odd jobs, whatever they can get.

Why did he not set up his company as part of an LLC or something? Heck, you’re borrowing millions of dollars, sit down and pay a CPA and a few lawyers to find the best way to keep you from losing your home, savings, boat, etc.

Gee, heavily leveraging yourself to start six housing developments around Cleveland during a huge housing bubble turned out to be a bad idea? Color me shocked. I feel bad for the guy, but come on. A little irrational exuberance perhaps?

Still, a good illustration of how this crisis/recession/panic/whatever spreads throughout all sectors.

this isn’t really news. new homes have been hit hardest by this since the beginning, because unlike a person who decides to put their house up on the market to cash in on the market and then just decides to stay put when the market declines, developers have invested in building the homes with the expectation that they will see a return in the form of home sales…

when this whole thing started i predicted that december 08/january 09 would be the best time to purchase a home as developers and banks trying to get empty houses off their books in a bottomed out market. but at the time it was not evident that the affects of this would manifest in the tightening of lending standards and lowering of loan amounts. now i’m not sure WHEN a good time to cash in on this market is, if any at all – and i’m a damn economic analyst!

also – the job angle has been going on for some time as well. financial services, building & construction trades… they are all being hit by this. one solution is to funnel money into rebuilding our country’s crumbling infrastructure and to re-train workers who were in residential construction to enter the highway/bridge construction subsector.

@Tux the Penguin: It probably wouldn’t have helped in this case. Regardless of how the company is set up, most banks want some kind of collateral before they will issue a loan, line of credit, etc. It isn’t unusual for the owners to have to put up their personal assets in those cases.

I’m fine with this. These bastards just chew up the forests and under compensate communities for the burdens they place on schools and sewers. Maybe the politicians they pay off in order to get access to protected areas can bail them out.

I say screw all of them After seeing the cozy relationship between developers and politicians in Florida, I have neither sympathy nor empathy for the poor sap in this story.

Been through a couple of these as a sub… The effects will be long lived and bitter.The people that actually swing a hammer,install wiring and plumbing and such will be screwed here.When the banks repo the homes,the subs get the royal run around for work already performed. They usually protect themselves (retaliate) by placing a lien on the house and this makes it even harder and more complicated to sell.
The very smallest “builders” are usually just guys that operate on a shoestring, work out of their truck and run the business out of their back pocket. These are the guys that under the best of circumstances are walking bankrupts. They are forever robbing Peter to tighten up Paul.Typically,they give their companies impressive sounding names,print up some business cards and start building.Then when the music stops and the boom dies out,they go to work for other companies…Leaving an impressive trail of unpaid bills,unsatisfied homeowners and stiffed vendors. Just try suing one of these guys. That’s when they turn off their throwaway phone,move out of their rented house and …Disappear.I feel great empathy for the victims in all of this. their pain is just beginning.

I’m still waiting for the story about some guy who sues HGTV after he quit his well paid city job to flip houses and lost everything because he watched “Flip this house” and thought “hey I can hold a hammer”. That’s the real bubble!

@picshereplz: never underestimate stupidity when driven by greed during a feeding frenzy. think about the thousands of people who cant afford their ARM’s. they weren’t “victimized” in any way… they just bought beyond their means hoping to take advantage of the housing boom.

but got caught with their pants down.

and are now crying “pity me… the lender f*cked me over”. no. no one f*cked them over but their own greed.

@Tux the Penguin: That’s simple to answer. If he had used his own money, then he would have to cut back on his expensive cars, vacations, and other luxuries while he was building the development. Why start small and reduce risks when you can go for one big payout? [/sarcasm]

I agree he likely made some bad decisions. I was mainly pointing out that he probably poured his own money into the business to avoid having the banks go after it directly.

Read that somewhere around 75% of the bad loans were made in the last 18 months of the bubble. That is, if the “Libertarian” Greenspan and the Republican Bushies done their job instead of sitting on their hands, working people like this guy probably wouldn’t have been driven into bankruptcy.
Obscene.
Is there anything that their ideology hasn’t turned to crap? ANYthing?!

@oakie: In many cases that’s true, but there are plenty of cases where the mortgage broker falsified data on the application, lied to the borrower about what was included in the monthly payments, etc etc.

What’s funny is that I was listening to the radio yesterday and they were interviewing a local custom home builder and he wasn’t worried at all. He explained that the housing crisis was a localized phenomenon and that the housing market will pick up by next summer. He acknowledged that in some parts of the country the housing market is in serious trouble, but in other parts, houses are appreciating.

Keep in mind, I think he was speaking specifically about the housing market and not the direct and side effects of the meltdown.

He wen on to say that local builders over-built, but they had been told to expect a local military base to dramatically increase the number of people stationed there, that hasn’t happened yet, so here we are, too many houses.

I’m sort of dismayed at the “heh, suck-it developer!” sentiment from some of you. Yes, he made some bad choices and should have to pay for it. HOWEVER, I think the point of this article is discussing who this effects. The subcontractors–these are typically smaller businesses and it’s easy to put them out of business by not paying them for a year or two. Also, all of those skilled workers this guy had working for him may now be out of work.

Good. All housing developers who bulldoze large swaths of land to build flimsy, ugly, and unwanted McMansion developments deserve the same fate. For those of you who feel sorry for this man, remember that he’s from the same cadre of fools who made the housing market unaffordable and inaccessible to the smart consumer.